Is anyone clean ?!?

In an embarrassing triple-whammy for the United States Securities and Exchange Commission, Gregory Earls, the penny stock financier who indirectly led to the downfall of SEC chairman Harvey Pitt and accounting oversight committee head William Webster, has been arrested in a criminal case and charged in a civil SEC action on Thursday, the same day the General Accounting Office released a scathing report on the debacle revealing no-one at the highest levels of the SEC did even a basic Edgar search before Mr. Webster was nominated.

Meanwhile, William Donaldson, the nominee to replace Mr. Pitt as head of the SEC, brings his own penny stock experience to the top stock market watchdog job. Mr. Donaldson served as director of Mail.com when the penny stock promotion hired penny tout John M. Dutton for a paid research report.

Even more peculiar, a fellow director of Mail.com, who serves as its president of international operations, is George Abi Zeid, an indirect former business associate of fugitive Thai financier Rakesh Saxena, a long-time close ally of Saudi arms merchant Adnan Khashoggi. (Mail.com was renamed EasyLink.) Prior to joining EasyLink in early 2001, Mr. Abi Zeid was best known as a senior executive of Xpedite Systems Inc., which vended in three telecommunications companies from Mr. Saxena in a transaction at the heart of Thailand's criminal charges against the fugitive financier. There are no allegations of any wrongdoing on the part of Mr. Abi Zeid.

In the Pitt debacle, C. Gregory Earls, the former chief executive officer of U.S. Technologies Inc., was arrested and charged Thursday with 10 counts of securities fraud in a $13.8-million fraud he allegedly perpetrated on investors in the company through USV Partners, his private company. The SEC filed a parallel civil action.

The U.S. Technologies case made headlines this fall when The New York Times revealed that Mr. Webster served on the company's audit committee and fired auditors BDO Seidman when they issued a negative report citing concerns about irregularities and shoddy accounting relating to Mr. Earls.

Before they joined the board of U.S. Technologies, it is unclear how much due diligence was done by Washington beltway heavyweights Judge Webster, a former CIA chief who also headed the FBI for nine years, veteran Senator George Mitchell, the former Senate majority leader, or Beth Dozoretz, a former finance head for the Democratic National Committee. (Mr. Mitchell, Ms. Dozoretz and four other directors resigned from the board of U.S. Technologies, now virtually insolvent, in April, while Mr. Webster followed in June.)

Stockwatch revealed that U.S. Technologies features strong Howe Street roots; its former controlling shareholder is a shell company in the secretive offshore enclave of the Turks and Caicos Islands; several former directors were previously key figures in Pan Pacific Gold Corp., a controversial VSE promotion, and one former key shareholder held U.S. Technologies shares in accounts at eight different brokerages over a 2-1/2-year period.

In late October, Mr. Pitt came under heavy fire for pushing Mr. Webster as head of a new SEC accounting oversight board, the Public Companies Accounting Oversight Board, after the judge informed him of his U.S. Technologies baggage, and forgetting to tell fellow SEC commissioners about his favoured candidate's corporate governance troubles before the commission voted 3-2 to support the Webster nomination. Both Mr. Pitt and Mr. Webster subsequently resigned.

The GAO, the investigative arm of Congress, was scathing of the highest levels of SEC management in its detailed 32-page report on the Pitt-Webster debacle, released Thursday.

"The SEC chairman and the other commissioners told us that they learned for the first time of reported 'allegations of fraud' against U.S. Technologies and that the company had dismissed its external auditor following an audit that uncovered material internal control weaknesses from a (New York Times) reporter's inquiry on October 30 or from the October 31 newspaper article," states the report.

"Moreover, SEC staff did not consistently search internal databases such as the Name Relationship Search Index (NRSI) and the Eletronic Data Gathering and Retrieval System (EDGAR), or periodical databases such as LexisNexis and Westlaw, for any information on potential candidates."

Mr. Donaldson, who served as chairman, president and chief executive officer of Aetna, joined the board of Mail.com, renamed EasyLink, in April, 1998.

Like Judge Webster, Mr. Donaldson has impressive and impeccable credentials. From 1995 until 2000 he served as senior adviser to Wall Street investment banking firm Donaldson, Lufkin & Jenrette, Inc. (He co-founded DLJ in 1959 and served as its CEO until 1973.) He also recently served as chairman of the Carnegie Endowment for International Peace.

Mr. Donaldson served as chairman and CEO of the New York Stock Exchange from 1991 to 1995, and iIn 1973, he was appointed U.S. Undersecretary of State and subsequently served as Counsel to Vice-President Nelson Rockefeller.

Mr. Donaldson's fellow EasyLink director Mr. Abi Zeid has travelled in different circles. Before joining EasyLink, he served as president of Swift Telecommunications Inc., a company he founded in 1999. Before that, he served as executive vice-president of Xpedite Systems from 1994 until 1998. Mr. Abi Zeid also served as president and CEO of Swift Global from the time he founded the company in 1980 until 1994. (Prior to that, he founded Swift Telex Inc. in 1978.)

By all accounts, Mr. Abi Zeid served Xpedite at an exciting period in the company's history.

Most notably, Mr. Abi Zeid had at least a passing acquaintance with Mr. Saxena, a key figure in the $2-billion collapse of Bangkok Bank of Commerce in mid-1996, the first banking collapse in Thailand, the first country to fall in the Asian economic meltdown. Mr. Saxena was arrested on July 7, 1996, at the luxury ski resort of Whistler, north of Vancouver, three weeks after Stockwatch revealed his presence in the Vancouver area.

Mr. Saxena, along with close associate Mr. Khashoggi and former Bangkok Bank of Commerce head Kirkiat Jalichan, is alleged to be a major player behind scores of dubious loans and bank deals. His specific extradition charge relates to embezzlement of about $88-million (Canadian) to City Trading. The doubtful loan, paid in five instalments in June and July, 1995, was ostensibly made to finance the purchase of shares of three telecommunications companies: Swift Global Communications Inc., Vitel International Holding Co. Inc. and Comwave Communications AG. The Saxena group sold the SVC telecom trio in November, 1995, to Xpedite, a Nasdaq company, for $42.62-million in cash and $14.23-million in Xpedite shares.

To its credit, Xpedite significantly disclosed the Saxena stigma in its regulatory fiings, staring in 1996, soon after the deal was completed.

"The Company has been informed that two foreign individuals, who may be indirect beneficial owners of certain of the entities (the "Former SVC Shareholders") from which the Company acquired the SVC Companies, are the subjects of a criminal investigation in Thailand relating to the alleged embezzlement of funds from the Bangkok Bank of Commerce; and that certain of such funds may have been used by the Former SVC Shareholders to purchase interests in the SVC Companies prior to the sale of the SVC Companies to the Company," states Xpedite in regulatory filings.

" The Company has been informed that such individuals maintain their innocence with regard to all such charges. The Company does not believe that such investigation will have any material adverse effect on the Company."